The Issue. A unique feature of the Federal subcontracting environment is that it is subject to a set of complex procurement regulations (F.A.R.) - only some of which apply - and is concurrently subject to the Uniform Commercial Code, as it is generally implemented by a state commercial code. This [presentation] was created to: 1) provide an overview of these regulations and laws; 2) provide a summary outline of how they relate to each other; and 3) compare and contrast selected provisions of both. The focus of the workshop will be on the practical aspects of these regulations and laws as they relate to procurement professionals.   I. OVERVIEW - At the risk of being accused by some of blasphemy, I must first emphasize that the subcontract is a "commercial contract"; therefore, the primary governing body of law in the subcontracting environment is commercial contract law (not F.A.R. or Federal law). This generally takes the form of your state's version of the Uniform Commercial Code (U.C.C.). The Federal Acquisition Regulations (F.A.R.) are applicable only to the extent incorporated by the parties in the subcontract. It should be noted that the F.A.R. is not a body of law, nor does it have the force/effect of law in the subcontracts environment. While many Federal laws also govern these procurements, they apply because they are Federal laws - not because they are incorporated by/in the F.A.R. In such instances, the F.A.R. is only the implementing vehicle for such laws. Examples of these are: Procurement Integrity Act, Small Business Legislation, Affirmative Action Legislation. Since F.A.R. clauses are not automatically applicable to, or incorporated into the subcontract, we can understand the significance of ensuring the incorporation of the appropriate ones into each transaction. This is particularly important when a specific clause gives the government a right which requires collateral action on the buyer's part with the supplier, e.g.: the changes clause, or termination for convenience clause. Since there is no comparable right in commercial law, you can see that your company could be "caught in between", if the government were to exercise such a right in your company's prime (sales) contract (like terminate for convenience), and you could not concurrently do likewise with your major suppliers. It is not only important to ensure "flowdown" of appropriate clauses to your suppliers, but to ensure that some of them are not merely incorporated by reference. For example, the government right to access to records and/or audit clause(s) would require significant modification to be acceptable in a subcontract. This is because it is doubtful that a subcontractor is going to grant your company (the prime) the same rights which you are obliged to grant to the government. We will analyze some of these requirements during our workshop.   II. RELATIONSHIP - This unique contracting environment is concurrently subject to the commercial code of buyer's and seller's state(s), and to the Federal Acquisition Regulations (F.A.R.) and certain Federal Statutes. Confusion regarding the relationship usually arises from the concept that Federal law takes precedence over state law. This may generally be true; however, it must be remembered that the F.A.R. is not a statute or law. Therefore, the state commercial code will principally govern the subcontract. When will Federal law apply to the subcontract? Federal laws apply to the subcontract if/when the provisions of the law so require - not simply because of their inclusion in the F.A.R., i.e.: if the F.A.R. provision regarding Equal Employment Opportunity or Procurement Integrity Act (PIA) are inadvertently left out of an appropriate subcontract, the subcontractor must still comply with these requirements because they are "laws". What about a conflict or inconsistency between federal law and state law on a particular element? This is a subject about which volumes could be written, and for which there is considerable controversy. However, as a general rule, if both bodies of law do apply, and there is truly a conflict between them, then the federal law would take precedence over its collateral state law. This will rarely occur in the federal subcontracting environment.   III. COMPARISON - A summary comparison of selected provisions of the F.A.R. and U.C.C. is provided as Table I. F.A.R. AND U.C.C. - DISTINCTIONS F.A.R./Government U.C.C./Commercial Contracts actual contracting authority required apparent authority sufficient formal T&C and mandated clauses informality and many implied terms "offer" and "acceptance" unequivocal equivocal and/or contrary terms can create contract specific ethics/standards of conduct good faith/company policy warranties only as expressed implied and express warranties specific inspection/acceptance criteria implied and statutory terms for inspection/ acceptance/rejection damages for delivery default limited UCC provides for excess costs, plus incidental and consequential damages convenience termination rights unilateral  no collateral rights changes clause (unilateral) no collateral rights cost data required over $ threshold no cost/pricing data rights disputes resolution limitations numerous alternatives available formal competition required no such requirement authority to audit seller's books no way!   Perhaps the best way to summarize the differences is to state that the F.A.R. establishes a very structured, formalized method of contracting, while the U.C.C. proposes unstructured, informal contracting, based on the intent of the parties, rather than the content of documents. As may also be noted, there is significantly more flexibility in the commercial contracting environment. In our seminar, we will discuss the substantive differences, and outline the action needed to ensure that buyer's contractual rights are adequately protected. Of particular concern to the subcontracting professional are the areas where there are no collateral rights or obligations under the U.C.C. e.g.: convenience termination clauses. Let me summarize a few of the substantive differences between F.A.R. and U.C.C.: Warranty. F.A.R. warranties are quite specific and rather limited. The government often elects to have no warranty coverage because they view this as an added cost which may not be required (because of their extensive specifications). While this may change with the new "commercialization" initiatives, the government's position on this subject has not yet changed. U.C.C. provides comprehensive warranty rights classified as both express and implied. The implied warranties are very favorable to the buyer, and are automatically a part of the transaction unless specifically excluded. This concept will be discussed in our workshop, as will the issue of whether both U.C.C. and F.A.R. warranties can apply to a subcontract transaction. Remedies - for breach of contract. F.A.R. specifically provides for recovery of excess costs of reprocurement. It also reserves "any other rights and remedies provided under the contract or by law" (F.A.R. 52.249-8). This could arguably include U.C.C. rights - particularly under a subcontract. U.C.C. specifically provides for recovery of excess costs of reprocurement, as well as incidental damages and consequential damages. This latter category can be quite extensive, and is a significant benefit to an aggrieved Buyer. Disputes F.A.R. provides for a very specific course of action between the government and a contractor in the event of a substantive disagreement. This is a very structured process, and must be meticulously followed by both parties, i.e.: the contractor cannot merely file a law suit. There is currently recognition in F.A.R. of alternate disputes resolution (A.D.R.) processes. Since most government contracting personnel are unfamiliar with these alternate forums, they are not yet used extensively in this environment. Commercial law allows for numerous disputes resolution formats, such as mediation, arbitration and litigation. These are not nearly as structured, and will be discussed in some detail during our workshop. These are only a few of the more significant differences which must be considered by the procurement professional in the subcontracting environment.   IV. CONCLUSION - Recognizing the uniqueness of the subcontracting environment, and understanding the relationship of F.A.R. and U.C.C. in this environment is imperative for the procurement professional. This recognition and understanding will enable the parties to correctly assess their respective rights and obligations during contract formation and administration. It will also ensure that these rights and obligations are not inadvertently different than anticipated or desired by the contracting parties.

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